Here's Why Your Child Probably Doesn't Need Life Insurance

Recently, we came across an ad for the Gerber Grow-Up Plan, "a whole life insurance policy that helps protect your child while saving for the future."

And frankly, it got us wondering: Do children really need life insurance?

As with most financial questions, the answer isn't an absolute "yes" or "no." It's "probably not."

Life insurance is only needed by people who have others dependent on their income, like parents of minors, explains Alan Moore, founder and certified financial planner at Serenity Financial Consulting.

"Life insurance can also be used to pay off debts or be part of estate planning for ultra-high net worth clients," he adds. "Notice that a newborn doesn't fall into any of these categories. Outside of the extremely rare case of the child supporting the family by being a child star, you simply shouldn't buy your child life insurance."

Moore isn't the only one who thinks life insurance for children is a waste of money. High-profile experts such as Dave Ramsay ("There is no need to buy a life insurance policy for your children"), Suze Orman ("Please, you new parents, do not let anyone talk you into buying a life insurance policy on your child"), and Neal Frankle ("They aren’t out there earning a significant amount of money, so why would you need life insurance?") have advised against it.

That said, there are proponents of buying life insurance for children. Aside from the child star case, they say that if a child were to develop an illness that would make them ineligible for life insurance later on, it's a good idea to get them covered early. And, if the worst were to happen, the policy could pay end-of-life and funeral costs. This, however, isn't a realistic concern for most children; it applies mostly to those genetically at risk for illness or medically compromised in some way.

Moore cautions that the problem with this theory in particular is that some life insurance plans don't offer enough coverage to make it an effective strategy. For instance, the Gerber Grow-Up Plan caps coverage at $100,000. "In the event of a child developing a condition, growing up, starting a family, and needing insurance, $100,000 won't put a dent in the amount of insurance they would actually need," Moore says.

The other potential benefit of getting life insurance for a child is that they may be able to use that money later down the line. Life insurance premiums are low for healthy children, and, since a whole life insurance policy does hold cash value, the policy could be an asset for a child when he or she becomes financially independent, points out Larry Rosenthal, CFP, a certified financial planner and the president of Rosenthal Wealth Management Group.

The bottom line: You need to do your research.

If your child isn't at risk for illness, you're looking for costs to eliminate, and you're financially stable enough to cover the bills should a medical emergency arise, life insurance policies for your smallest family members probably aren't necessary.

But of course, every family is different, and so are their coverage needs. Whether or not you're pursuing a life insurance policy for your child, Rosenthal recommends getting quotes from multiple companies before signing up for a plan, and, most importantly, taking in the fine print. "People have to understand what they're getting," he says. "It all comes down to the cost and the benefit."